Fall­ing dol­lar cush­ions ef­fect of oil price rise

The Weekend Australian - Travel - - Resources / Engineering & Mining -

WHILE Amer­i­cans gaped wideeyed as oil passed $US90 a bar­rel, coun­tries with stronger cur­ren­cies have not felt the same sticker shock: the rapidly fall­ing dol­lar has pro­vided a de facto dis­count. Or it did. That was un­til oil’s 30 per cent surge since late Au­gust eroded what small ben­e­fit hold­ers of euros, Bri­tish pounds, In­dian ru­pees and other cur­ren­cies en­joyed from the dol­lar’s de­cline over the same pe­riod.

World­wide, economies are feel­ing the pinch of high oil prices, rais­ing con­cerns that en­ergy in­fla­tion could slow growth abroad. But economists say global economies from Europe to China likely face no more risk of a re­ces­sion due to high oil prices than does the US.

In­creased en­ergy ef­fi­ciency, a pro­gres­sive rather than shock­ing climb in oil prices, and faster-paced in­come growth have made higher en­ergy prices less harm­ful to­day than 30 years ago.

‘‘ Pre­vi­ously, we have said that once oil crosses $80 and stays above there for a year or so, the risk of re­ces­sion is high,’’ said Song Seng Wun, re­gional econ­o­mist at Sin­ga­pore-based CIMBGK Re­search. ‘‘ But at this point, whether that still ap­plies or not, we don’t know. Economies have be­come more ef­fi­cient, busi­nesses are more ef­fi­cient, we use less oil. So we’ll see.’’

A bar­rel of crude crossed $US90 a bar­rel for the first time last week. The same bar­rel bought with euros looks like $US63. Bought with Bri­tish pounds a bar­rel of crude looks more like $44.

Other cur­ren­cies have also ap­pre­ci­ated against the dol­lar, giv­ing fast­grow­ing coun­tries such as China and In­dia a slight break. China’s yuan has climbed 5 per cent against the dol­lar from a year ago; In­dia’s ru­pee has risen 14 per cent.

The ef­fect on con­sumers over­seas is more dif­fi­cult to com­pare with the US, given that Euro­peans face high taxes on fuel, and China and In­dia have staterun oil com­pa­nies that con­trol oil prices to smooth swings.

Some an­a­lysts spec­u­late that with­out the ru­pee’s in­crease, the Gov­ern­ment might have raised re­tail fuel prices by now. In­dia’s pe­tro­leum min­istry last week said it has no plans to hike fuel prices un­til next March. China, wor­ried about spik­ing con­sumer price in­fla­tion, an­nounced a mora­to­rium on Septem­ber 20 block­ing petrol price in­creases.

Oil’s rise is at least par­tially due to the US dol­lar’s de­cline. A weak dol­lar in­creases the at­trac­tive­ness of com­modi­ties, which are seen as re­tain­ing their un­der­ly­ing value rel­a­tive to all cur­ren­cies, and spec­u­la­tive in­ter­est in the en­ergy mar­ket has surged in re­cent weeks. AP

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